Motif Investing Review – Be Your Own Fund Portfolio Manager, Even Get Paid By Others

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Updated. Ever wanted to manage your own mutual or ETF? A new brokerage company called Motif Investing will let you do just that. One of their pitches is that you can invest in a group of up to 30 individual stocks that fit into a motif or theme like “Housing Recovery” or “Lots of Likes” (companies that have the most Likes on Facebook). You can buy the entire basket of stocks with just one $9.95 commission, with no ongoing management fees. The minimum motif investment amount is $250.

My initial impression was that it felt a bit too trendy and gimmicky to recommend as a long-term investment. Indeed, I don’t really care how many Facebook Likes a company has, and I doubt I would buy stocks based on my love of pets or my political views. It’s just not my style.

Since they let you customize the basket, anyone could essentially make their own ETF or mutual fund with ZERO expense ratio. You can’t track a broad index like the S&P 500, but if you do have a basket of stocks that you buy regularly, this would be a very cost-efficient way of doing it. You can add or remove stocks, and adjust the relative weighting of each stock in the motif. Here’s a screenshot (click to enlarge):

Horizon Motifs are preset “target date” motifs which are commision-free and with zero management fee. There are 9 different Horizon Motifs – you pick one of three time horizons (1 year, 5 year, or 15 year) and one of three risk levels (conservative, moderate, or aggressive). Kind of like a Target Date 20XX mutual fund, kind of like a roboadvisor. If you buy these specific portfolios, they waive their $9.95 commission. More information at this post: Horizon Motif Review: Commission-Free, No Advisory Fee, Index ETF Portfolios.

You can even make money when others use your Motif Portfolio with the Creator Royalty Program. Every time a client makes a $9.95 trade using your Motif, you’ll get a $1 royalty fee. For example, after reading an article about the Voya Corporate Leaders Trust Fund which bought 30 stocks in 1935 and then never sold them (but still charges a 0.52% management fee every year), I created the Depression Survivors Motif which does basically the same thing except it has zero management fees.

So far, I’ve made one entire dollar! 🙂 Recent performance has been abysmal due to recent oil price drops, as Chevron and ExxonMobil are significant holdings.

My plan is to someday create a custom basket of dividend-oriented stocks that hopefully will provide a long-term stream of growing income. For example, look at the SPDR S&P Dividend ETF (SDY) that holds 60 highest-yielding stocks of the S&P 1500 that have raised their dividends every year for the past 25 years. It’s a nice idea, but it leaves out some good companies and the 0.35% expense ratio eats up 10% of the original yield of the underlying companies. Why not hold most of these directly, remove some of the ones you don’t like, and keep the 0.35% as extra return for yourself?

Motif also uses dollar-based trades, which means every penny is invested, while they keep track of any fractional shares for you. No maintenance fees, no inactivity fees. In many ways, this is similar to the unlimited plan at Folio Investing, but Motif Investing has the potential to be a lot cheaper ($10 per motif trade with no minimum trade requirement vs. $29 every month for Folio) and is closer to a ETF in that they do real-time market trades. You can still do regular real-time trades of individual stocks for $4.95 per trade. Currently there is no automatic dividend reinvestment, the dividends go to cash and you reinvest yourself as desired.

Update: As of 8/13/15, Motif is adding the following features:

Dollar-based, real-time purchases of single stocks and ETFs (in addition to whole shares).

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Hi David. I work for Motif Investing and I wanted to clarify the answer to your question. There are not any fees to withdrawal money with us, unless you are doing a wire transfer which Calvin mentioned. Most of our customers set up a connection with their bank so they can move funds in and out as they please. This is not a cost.
Thanks,
Nick

Troy –
You need to wait till funds have settled to make a withdraw. This is T+3, so if you sold Monday, you could withdraw the funds first thing Thursday morning. Does this help? If you need further help please call our CS Team at 855-586-6843. Thanks!

How will these transactions be reported come tax time? If you set up a custom ETF with 10 stocks and buy once a month for a year… when it’s time to sell, is that 120 purchases to report, or 12? In a standard ETF, is it 12?

Brad. Great question. I am a employee of Motif Investing. These trades are reported at the individual stock transaction when filing taxes. We do provide a consolidated 1099 and upload file for Turbo Tax come tax season. We also offer IRA accounts!
Thanks,
Nick

KP. I am a employee at Motif Investing. We are a registered Broker Dealer with FINRA and hold SIPC insurance. More importantly, we do not hold any of our customer’s money. We are the broker that provides the ability to transact in motifs, but Apex Clearing, the second largest clearing firm in the country holds all the assets. You can see more here in our FAQ’s.https://www.motifinvesting.com/view/faq
Thanks!

Brad, buying and later selling an ETF position would be one purchase/sale to report to the IRS. If these “motifs” are not recognized as a unique type of security by the SEC and the IRS, I’m sure the IRS would consider all 30 stocks in a “motif” to be individual holdings. If that’s true, I suspect that selling one motif and then buying another could lead to some complex tax issues if any of the individual stocks overlap.

I don’t see anything on the website about rebalancing. I get the impression that the “motif” concept only applies to the purchase, and not to portfolio maintenance.

Hi Deymond. I am an employee at Motif Investing. I did address Brad’s tax question above, but i wanted to discuss rebalancing. All motifs can be rebalanced for the cost of $9.95. At any time if you want to change the weighting of the positions in your motif, or you would like to add or remove positions, you can do this for one commission of $9.95.
Thanks!
Nick

Re: Bonus Trade
The terms are pretty clear that you don’t need to place a trade for the bonus, just some requirements based on funding.

Re: Rebalancing
If you look at the details of each motif under “How We Built This Motif” you’ll see a rebalancing frequency listed, usually either quarterly or annually. Right now all I can find is that rebalancing motifs is a feature that will be available for a “small fee”. It does say that you can also sell motifs for the same $9.95 commission.

Re: Safety
Motif Investing is registered by the SIPC and uses Apex Clearning (formerly Penson and PEAK6), so it’s as legitimate as a TradeKing or other discount broker. They are listed in the member database at SIPC.org.

Who owns the actual stocks in the Motif? If you own the underlying stocks it would protect you should Motif investing go bankrupt, you would be able to transfer the underlying stocks to another account or yourself. If Motif owns the underlying stocks and went under you would be out of luck.

Hi John. I am a employee at Motif Investing. You as the account holder own the underlying stocks, just like any other broker registered with FINRA. We clear through Apex Clearing, the second largest clearing firm behind Pershing. Apex holds custody of all customer assets, we do not hold any.
Thanks,
Nick

“Motif is also offering a Free Trade Day on Friday, August 21st where all customers can get a free market order trade for a single stock/ETF.).” Is this for 2015?? Also, I do my taxes by hand; if I buy an existing motif, and sell it this year, what info is reported on the 1099? (Is it just the 1 motif name, or, does it list all of the companies within the motif and the corresponding buy/sell # of shares, price, etc.??

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